What is account reconciliation?
Published
Reconciliation is comparing an account balance in your books with an independent source that should match it - the bank statement, a supplier's statement, a customer's balance, a petty cash count - and explaining every difference down to zero. Periodic reconciliation is the strongest error detector in all of accounting, because it confronts your books with a witness from outside them.
The example that matters most: the bank reconciliation
Al-Waha's books at 31 May show a bank balance of 176,300; the bank statement shows 178,940. The 2,640 gap is not waved through as "small" - it is explained:
Statement balance 178,940− Cheque issued, not yet presented (3,860)+ Customer deposit in transit 1,250= Adjusted balance 176,330
Book balance 176,300− Bank fees on the statement (95)+ Customer transfer on statement, unbooked 125= Adjusted balance 176,330 ✓
Both sides meet at 176,330 - the true balance. One task remains: entries for the book-side items only (fees and the transfer); statement-side items are timing that corrects itself.
| Entry | Debit | Credit |
|---|---|---|
| Bank charges 95 / Bank 95 | 95 | 95 |
| Bank 125 / Accounts receivable 125 | 125 | 125 |
Beyond the bank: reconciliations that matter as much
| Reconciliation | Against | Catches |
|---|---|---|
| Suppliers | The supplier's statement | Duplicate/missing bills, unapplied credits |
| Customers | A statement you send, their confirmation | Balance disputes before they age |
| Petty cash | The physical count | Shortage or excess |
| Output VAT | E-invoicing platform data | A return gap before the authority finds it |
Frequently asked questions
How often do I reconcile the bank?
Monthly at minimum, with the close; with a bank feed it becomes near-continuous, and the monthly one becomes its documentation.
A tiny difference I can't explain?
Document the search, then settle it with a documented reconciliation-difference entry if trivial - but small differences recurring in the same direction are a pattern, not chance.
Who reconciles?
Someone other than whoever records, wherever possible - segregation here is the safeguard, because whoever erred (or tampered) is not left to discover themselves.